How Does Equipment Financing Work?
If you get equipment financing, you’ll have borrowed money to purchase equipment for your business. You are required to make payments that include interest plus principal periodically and within a specified term. The lender might require a lien on the business equipment as collateral to back the debt. All you need to do is pay back as agreed and fully own whatever equipment you had earlier bought. But if you fail to repay as per the terms, you risk having your assets seized. It can either be your business assets or a personal asset if there was the signing of a personal guarantee. Therefore, it is best to check the terms carefully before signing up for the loan.
What Are the Qualifications for Equipment Financing?
The qualifications for equipment financing vary by lender. Your credit rating is one thing that matters. Lenders need to trust that you’re able to pay back on time before financing your business equipment. They may also need a business plan that shows what you intend to achieve with your business over the coming days, months, or years. So, it should be detailed to ensure that lenders can find the intended business growth they’re looking for. If lenders can catch a summarized version of how your business will be without struggle, you’re good to go! Other requirements within your business plan are a profit and loss statement and a balance sheet in some cases.
Where to Get Equipment Financing
When it comes to getting equipment financing, several options are available. These include traditional lenders and online lenders. Some lenders might have stricter requirements but better rates and terms. If you can meet the minimum requirements of such lenders, they’re always the best to go for.
Startups with weaker credit ratings can still qualify for equipment financing. If your business falls in this category, you just need a proper repayment plan before applying for equipment financing. This way, you won’t be at the risk of having your valuable business assets repossessed in the future.
Besides equipment financing, there are other financing options to choose from. Some of them are business credit cards and angel investing. Remember that every funding option has its pros and cons. So, don’t be focused on the advantages or disadvantages alone. It helps to weigh your options from any possible angle and come up with a suitable payment strategy.
